GHG policy leadership and technology development matters, but such claims deserve scrutiny.
I get it. Economics is not the only thing that drives a state’s energy and climate policy. Nor should it be. Policies in one location influence decisions elsewhere, which sometimes gets called “leadership”. And today’s clean energy policy — even if it is uneconomic in itself — may spur new technologies or trigger market changes that spill over to help other sectors or countries reduce emissions.
I get all that. In fact, I have written on this blog about the need to support clean energy technology development, and have argued that pricing greenhouse gases isn’t sufficient. I also get that there will always be uncertainty about the impacts of energy policy — whether the direct response to prices and regulations, or the harder-to-measure effects like leadership and market or technology transformation. And we cannot wait to take action until we are 100% certain about the effect it will have.
But hard-to-measure shouldn’t be a get-out-of-evidence free card.
When we don’t demand evidence, we tell policymakers they can just go with their gut. That’s a bad idea. There are many policymakers in DC today whose gut tells them that climate change has nothing to do with human activity or that “the market” will address pollution on its own. Luckily, the vast majority of Californians have wiser stomachs.
But many in the Golden State have a different sort of gut feeling that is undermining the effectiveness of our climate policy. Their bellies say that we must try everything (as Shakira would say) we can to reduce California’s GHG emissions, virtually regardless of cost. I’m not going to reargue here the case against mandating solar panels on new homes or requiring new homes to consume zero net energy. Jim Bushnell has argued compellingly that these approaches to reducing GHGs are massively more expensive than available alternatives. I share his views, as do the vast majority of economists who have studied these policies.
When confronted with this economic argument, policymakers who advocate such costly policies nearly always appeal to the state’s global leadership on climate change, the potential for driving down future costs in these markets, and the need for California to take immediate action in order to avert catastrophic climate change.
Each of these claims has at least a grain of truth. But policymakers who make these statements often suggest they are conclusive arguments. They aren’t.
Yes, California has a global leadership position on fighting climate change, particularly now that there’s an administration in DC that says things like coal is a clean fuel. However, that doesn’t mean that every policy California adopts, no matter how costly, will be followed by other states and countries, or should be. Many poorer societies recognize the threat from climate change, but they are looking for cost-effective ways to respond. They aren’t in a position to ignore the expense.
Yes, mandating a technology increases its usage, and creates knowledge about its production, which helps to drive down its costs. Everyone knows the cost of solar panels has declined as Germany, Spain, California, and most recently China, have made big investments. That’s one datum (for those of you under 40, that’s the singular of data). Other data include what has happened with the cost of second-generation biofuels made from plants like miscanthus, or of carbon capture and sequestration, both areas that have been frustratingly resistant to cost breakthroughs. Policymakers who express certainty that a mandate or subsidy will drastically reduce costs (“just like solar panels”) are speaking from their gut, not from real evidence.
And, yes, California, along with the rest of the world, must take action to address climate change. But as I have said in this blog before, by far the biggest value of California action is to create low-carbon technologies that the developing world will adopt, not to squeeze another metric tonne or two out of California at a cost that would be prohibitive in the developing world.
These go-with-the-gut policy justifications may sound sensible at first, but they could be used just as easily for technologies that are going nowhere as for those that will end up making a real, cost-effective global difference. The result is a “try everything” climate policy, which makes it appear more expensive to fight climate change than it needs to be.
When California does that, it sets us up to be not a leader, but a sobering example. Spain’s excessive renewables subsidies on which the government later reneged is such one example. Another is Germany’s rising carbon footprint as it closes its nuclear power plants.
Furthermore, it simply is not the case that we understand climate science well enough to identify a clear threshold of GHG emissions that must not be crossed, regardless of the cost. We should be making major investments to reduce emissions now, and we should be developing new technologies to do so even more cost effectively in the future. But we don’t know any specific number below which we will avoid climate damage, and above which the impact will be exponentially greater.
That’s important to remember not just to keep the climate policy debate intellectually honest, but also because climate is not the only policy imperative out there. The world needs resources to combat poverty, disease, oppressive governments, nuclear proliferation, human trafficking, substance abuse, and on and on. With so many challenges, “try everything” can’t be the right answer for any of them.
Leadership and technology development should play central roles in the debate on climate policy, along with economic costs and benefits. But those claims should not be given a free pass any more than the ones that can be quantified more easily. Trying everything to fight climate change isn’t an option, and even if it were, it wouldn’t be the best option.
I’m still tweeting interesting (to me) energy articles/research/blogs (and occasional political views) @BorensteinS
Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.